Threshold cointegration and the short-run dynamics of twin deficit behaviour

Mark Holmes ()

Research in Economics, 2011, vol. 65, issue 3, 271-277

Abstract: This paper examines the relationship between the current account and budget balances by means of a threshold cointegration approach advocated by Hansen and Seo (2002). Using US data covering 1947-2009, a long-run positive cointegrating relationship is confirmed. This supports the notion of a Keynesian twin deficits relationship. The short-run dynamics are investigated through an estimated threshold vector error correction model. Depending on the regime present, it is either the external or internal balance that is responsible for error correction. This has important implications for the use of fiscal policy to control the external balance.

Keywords: Current; account; balance; Budget; balance; Twin; deficits; Threshold; cointegration (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1090944310000694
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:65:y:2011:i:3:p:271-277

Access Statistics for this article

Research in Economics is currently edited by Federico Etro

More articles in Research in Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().